Alternative revenue recognition points
The Tell Company manufactures a novel apple-shaped archery target. Each archery target costs A6 to produce and A1 to sell. The selling costs are period costs and are incurred (and recognised) when targets are delivered to retailers. Tell sells them at a price of A10 each. All sales are on account. Data on production, delivery and cash collection in the first and second years of the company's existence are summarised below:
|
|
Year 1
|
Year 2
|
|
Units produced
|
10,000
|
8,500
|
|
Units delivered
|
8,000
|
9,500
|
|
Cash collected
|
A75,000
|
A87,000
|
Required
Calculate revenues, expenses (production and selling expenses) and operating profit in years 1 and 2, assuming Tell recognises revenue:
(a) when units are produced;
(b) when units are delivered;
(c) when cash is collected.